Advertising on Amazon: Costs, Fees and Strategy
Amazon advertising is a great way to increase ecommerce sales, increase brand awareness, and gain valuable insight into customers’ changing tastes and habits. As the largest ecommerce platform in the world, Amazon sellers often have a love/hate relationship with the site; it’s a game you have to play to be successful, but you’re always playing by the house rules.
This is a handy guide for Amazon retailers who want to learn how to use Amazon advertising to increase sales or improve important PPC metrics like return on ad spend.
Why Advertise on Amazon?
Amazon.com has more than 310 million active users and 9.7 million sellers worldwide. For ecommerce brands, the site is an excellent sales channel alongside their website, Google Shopping, and other online selling portals. For customers, it may be their only sales channel. 61% of all online shoppers start shopping on Amazon, and 90% of online shoppers price-check purchases on the site even if they finish the transaction somewhere else.
If you’re thinking, “Hey, this sounds great. Can I advertise on Amazon?” well, keep reading. It’s not all conversions and rainbows.
The Role of Third-Party Sellers on Amazon
That’s you. Third-party sellers are independent merchants that agree to Amazon’s terms and conditions and pay fees. Selling on Amazon costs $39.99 a month plus fees based on total product revenue, shipping, and other optional costs associated with third-party sales. In exchange, brands access millions of daily active users on Amazon.
Third-party sellers account for more than 50% of Amazon’s revenue, which means merchants that make money on Amazon also make Amazon a lot of money.
How to Advertise on Amazon
Creating a store on Amazon is just the start. Once a store is set up, merchants can create different types of ads on Amazon. These ads serve as a part of the Amazon Display Advertising network and function a lot like Google’s display network in fee structure and ad formats.
The DSP includes various types of advertising on Amazon that meet different budgets and goals. Amazon ad placements go well beyond the Amazon domain, another factor that will influence your strategy.
Amazon DSP (Demand Side Platform) examples of types of ads:
Amazon Sponsored Products – This is the most common Amazon ad type and appears as a standard product listing on the search results page. These are pay-per-click and are targeted based on keywords chosen by the advertising brand (that’s you!).
Sponsored Brand Campaigns – Brand campaigns are similar to sponsored product ads but include multiple products from a single Amazon store. Instead of pointing users to a specific product page, Brand Campaigns link to either a customized product or collection page on the seller’s Amazon store.
Amazon Product Display Ads – Display ads are designed to cross-sell or upsell customers by highlighting similar products that are often purchased together. Display ads are available to all advertisers; you don’t have to have an Amazon store to use this type of ad. Display ads are served on individual product pages, customer reviews and on search result pages. Depending on your ad set-up, they are also served on Amazon email marketing pieces.
Video Ads – Video ads are served on Amazon.com and Amazon devices like Kindles and Fire TVs. Like display ads, you don’t have to be an Amazon seller to tap into video ads.
Amazon Native Ads – Native advertising on your own site may seem counterintuitive, but native ads use Amazon shopping data to serve personalized products to users on your site in real-time.
Choosing the right mix of ad types, creating engaging graphics and copy, and managing your monthly budget is a full-time gig. Our PPC team can take paid advertising off your to-do list.
How Much Do Amazon Ads Costs?
Amazon advertising pricing varies based on several factors, including the type of ad, your bid settings, and the competition for your targeted terms. The average cost of sponsored ads on Amazon can be as low as $0.35, though most researchers put the average closer to $0.89%. Remember, your CPC can and will change, so set your campaigns to cap out daily at an amount you’re comfortable spending.
Additional Amazon Advertising Fees
No matter what ad type you select, there are no monthly Amazon advertising charges, though you do need to pay the aforementioned $39.99 per month for your seller account. The price you pay per click will change based on how many competing vendors have placed bids on that keyword or keyword group.
But remember, your seller expenses aren’t restricted solely to advertising. Costs like fulfillment fees, referral fees or selling plans increase or decrease profit margin before factoring in ad spend. For most merchants, Amazon advertising fees are an additional expense baked into the cost of doing business on the largest retail platform in human history.
How to Balance Spend Between Google and Amazon Ads
Many sellers use Amazon as a second sales channel to complement their ecommerce website. In most cases, third-party vendors have better product margins when customers convert on the brand’s own website compared to buying on the brand’s Amazon storefront. When users convert on your domain, you don’t have to pay some of the transaction fees associated with advertising on Amazon, but if you use Fulfillment By Amazon (FBA), you will have to pay any relevant shipping, handling, or processing fees.
If your average profit margin is higher on your own domain, it may be best to use Amazon ads to increase total brand awareness. Amazon recommends using video and display ads to achieve this goal.
Amazon Ads vs. Google Ads
Think of your Amazon and Google advertising efforts as two levers you can pull as a marketer. As spend on one channel increases, it may need to decrease on the other. Prioritize spend based on a few core metrics:
Return On Ad Spend – How much do you get back for every dollar spent? Optimizing your ROAS is a smart way to make the most of your ad budget; invest more on the channel that consistently offers the highest return.
Average Cart Value – Many PPC agencies miss this one. Customers on Amazon and Google could represent very different audiences based on the data used to serve the ad. In some cases, one channel might see increased value per transaction, which makes each conversion on that channel incrementally more valuable over time.
Cost Per Click – It’s the heart of digital advertising and while there are a lot of other variables, CPC doesn’t lie. Shift budget where CPC is lower, or where CPC and related fees preserve a higher profit margin.
Test, Test, Test Your Ads
You’ll never truly know which platform is more valuable to your brand without doing the dirty work. Over time, test different types of ads in different locations on both platforms to experiment with various budget allocations. There are always ways to get more out of your marketing budget!
The Best Way to Advertise on Amazon is to Advertise Other Places, Too
Amazon seller advertising can be incredibly effective for brands, but there are several drawbacks for vendors who make it their main (or only) sales channel.
Highly Competitive – With nearly 10 million sellers, Amazon is intensively competitive, and it can be difficult for new brands to compete. There may be thousands of sellers carrying a specific product at nearly identical prices. Most customers won’t scroll far enough to see vendors outside the top five product results, let alone the top 500.
Fees – There are different fees associated with selling products in different categories. Combined with fulfillment fees per item and monthly storage costs (if you use Fulfillment By Amazon), your profit margin can shrink quickly.
Channel Management – Selling on another channel means you’ll spend additional time managing sales and shipments in that space. Adding another paid platform is yet another management piece that takes away from running other business operations.
Whose Data Is It, Anyway? – As a seller and advertiser, you’re compiling data on your customers and products. As a seller on Amazon, you’re compiling that data and putting it in Bezos’ pocket. And Amazon might thank you by using your data to develop its own products.
Peek at All Your Advertising Options
Amazon is a playground retailers love to play on, but it isn’t the only option. Our dedicated paid media team can help you find the perfect balance of paid channels and make it all work alongside your other digital marketing efforts. Get in touch or call 231-922-9977 and let’s get started!
